Finance panel spreads cheer among states

Shuns Plan, non-Plan distinction to arrive at pre-devolution revenue deficit for states

In a significant departure from past commissions, the Fourteenth Finance Commission has calculated pre-devolution revenue deficit for states by taking into consideration their entire revenue expenditure without making a distinction between Plan and non-Plan.

The Commission has proposed to transfer Rs 5,37,354 crore as grants to states over the five-year period ending in 2020. The total allocation is divided into three categories - grants to local bodies, disaster relief grants to states and post devolution revenue deficit grants for 11 states.

The Commission has proposed grants for post-devolution revenue deficits for 11 states totalling Rs 1,94,821 crore for five years. The rationale for this is to provide grants to those states which the Commission projects to have a post-devolution revenue deficit in any year. The 11 states are Andhra Pradesh, Assam, Jammu & Kashmir, Himachal Pradesh, Kerala, Manipur, Meghalaya, Mizoram, Nagaland, Tripura and West Bengal. The government has in principle accepted this recommendation of the commission, subject to revenue raising and fiscal consolidation measures undertaken by the states.

To augment the consolidated fund of states, the finance commission has proposed transfers to panchayats and municipalities of Rs 2,87,436 crore over the five-year period. The grants will be distributed, using 2011 population data with weight of 90 per cent and area with weight of 10 per cent. Of this, grants to panchayats are Rs 2,00,292 crore and to municipalities are Rs 87,143 crore. The government has accepted this recommendation.

Building into the system a mechanism for increasing the efficiency of local administration, the commission has recommended the grant in two parts - a basic grant and a performance grant. The ratio for basic to performance grant is 90:10 with respect to panchayats and 80:20 with respect to municipalities.

For gram panchayats to be eligible for the performance grants, they will have to present audited annual accounts in whichever year the gram panchayat seeks to claim the performance grant. Further, local bodies will also have to show an increase in their own revenues over the previous year. The Commission has also recommended these grants go to gram panchayats directly responsible for the delivery of basic services, with state governments expected to take care of the needs at other levels.

On providing disaster relief grants to states, the commission has continued with the practice of the previous panels and used past expenditure on disaster relief for the period 2006-07 to 2012-13 to determine the State Disaster Response Fund corpus for each state. Following the methodology, the Commission has arrived at a figure of Rs 61,219 crore. Of this, 90 per cent or Rs 55,097 crore is to be contributed by the central government. The government has accepted this recommendation, with the caveat that until a national Goods and Services Tax is in place, contribution will be according to the existing system.